Life Insurance on rental properties

[hardel]

Hi All,

I follow this board closely and I am learning all the time...Thanks! I was talking to my bank today about mortgage rates on a possible purchase of a rental property and he brought up the topic of purchasing life insurance. Property insurance, I understand you must have, but life insurance on investment properties.....What do you guys think?

Thanks!

Harold

 

[GaryMcGowan]

QUOTE (hardel @ Jan 8 2010, 06:51 PM) Hi All,

I follow this board closely and I am learning all the time...Thanks! I was talking to my bank today about mortgage rates on a possible purchase of a rental property and he brought up the topic of purchasing life insurance. Property insurance, I understand you must have, but life insurance on investment properties.....What do you guys think?

Thanks!

Harold

I believe you will get two different camps here when asking that question.

We decline it every time.
Think of it this way, You have business or property that is making money every month and taking care of itself. If you have team that you work with, spouse, brother, father whomever that will continue the business after a death then why insure it. Remember I`m only talking about mortgage ins. Life insurance is a different thing. My thinking is if you have a family that you support you need ample life insurance.

Now if you feel you need insurance no problem with me, Just don`t take it from the lender. 99% of the policies they try to sell you are not the ones you should be looking at. The most common one is; your mortgage is 200k and as you pay it down the insurance pay out also decreases but your monthly payment remains the same. This is a terrible product. There are other insurance providers that are a better choice. Example; you have a 200k mortgage today and in 3 yrs you pass on. Over the three years you have paid down the mortgage and they will still make a pay out of 200k. Usually the monthly payments are cheaper than what the lenders are charging.

As for having funds available when the owner passes on, the ownership needs to transfer to the person you named in the will. This will incure Land Transfer taxes (Ontario, BC). However in some provinces Real Estate can remain in someones "Estate" for long time. Allowing you to sell the property if needed.

Hope this helps a bit...
Good luck with your purchase !!!

 

[MonteDobson]

QUOTE (hardel @ Jan 8 2010, 05:51 PM) Hi All,

I follow this board closely and I am learning all the time...Thanks! I was talking to my bank today about mortgage rates on a possible purchase of a rental property and he brought up the topic of purchasing life insurance. Property insurance, I understand you must have, but life insurance on investment properties.....What do you guys think?

Thanks!

Harold
Firstly, NEVER take mortgage insurance offer by lending institutions...it is a rip off! Your are much better buying a separate "life" insurance policy thru an independent broker, with enough coverage to protect your desired assets.

Secondly, we DO NOT buy mortgage insurance on our rental properties, simply for the fact that if either my wife or I were to die, then the investment properties would continue on as a cashflowing asset (business) where the rental income covers all expenses.

That being said, we purchased a large enough "life" insurance policy that covers off our main assets (ie. primary residence) plus a small percentage of our rental property portfolio.

My 2 cents...

 

[CarrieKoch]

QUOTE (MonteDobson @ Jan 8 2010, 08:29 PM) Firstly, NEVER take mortgage insurance offer by lending institutions...it is a rip off! Your are much better buying a separate "life" insurance policy thru an independent broker, with enough coverage to protect your desired assets.

Secondly, we DO NOT buy mortgage insurance on our rental properties, simply for the fact that if either my wife or I were to die, then the investment properties would continue on as a cashflowing asset (business) where the rental income covers all expenses.

That being said, we purchased a large enough "life" insurance policy that covers off our main assets (ie. primary residence) plus a small percentage of our rental property portfolio.

My 2 cents...


This is a timely post! We just switched from mortgage and multiple loan insurance to a large term policy. We were planning to just get mortgage insurance on all of our rentals until we got this very advice. I feel comfortable now knowing we are really setup.

 

[hardel]

QUOTE (GaryMcGowan @ Jan 8 2010, 09:54 PM) I believe you will get two different camps here when asking that question.

We decline it every time.
Think of it this way, You have business or property that is making money every month and taking care of itself. If you have team that you work with, spouse, brother, father whomever that will continue the business after a death then why insure it. Remember I`m only talking about mortgage ins. Life insurance is a different thing. My thinking is if you have a family that you support you need ample life insurance.

Now if you feel you need insurance no problem with me, Just don`t take it from the lender. 99% of the policies they try to sell you are not the ones you should be looking at. The most common one is; your mortgage is 200k and as you pay it down the insurance pay out also decreases but your monthly payment remains the same. This is a terrible product. There are other insurance providers that are a better choice. Example; you have a 200k mortgage today and in 3 yrs you pass on. Over the three years you have paid down the mortgage and they will still make a pay out of 200k. Usually the monthly payments are cheaper than what the lenders are charging.

As for having funds available when the owner passes on, the ownership needs to transfer to the person you named in the will. This will incure Land Transfer taxes (Ontario, BC). However in some provinces Real Estate can remain in someones "Estate" for long time. Allowing you to sell the property if needed.

Hope this helps a bit...
Good luck with your purchase !!!

Thanks for your reply Gary! This really clears things up for me and your example (insurance - 200k mortgage) I was not aware of this. The learning never stops. Your assistance on this issue is appreciated.

Harold

 

[hardel]

QUOTE (MonteDobson @ Jan 8 2010, 09:59 PM) Firstly, NEVER take mortgage insurance offer by lending institutions...it is a rip off! Your are much better buying a separate "life" insurance policy thru an independent broker, with enough coverage to protect your desired assets.

Secondly, we DO NOT buy mortgage insurance on our rental properties, simply for the fact that if either my wife or I were to die, then the investment properties would continue on as a cashflowing asset (business) where the rental income covers all expenses.

That being said, we purchased a large enough "life" insurance policy that covers off our main assets (ie. primary residence) plus a small percentage of our rental property portfolio.

My 2 cents...

Hi Monte, thanks for your reply....it makes perfect sense. I will follow your advice as well. Take Care!

Regards,

Harold

 

[bizaro86]

Does anyone know the typical terms for cancelling mortgage life insurance? We have life insurance for both my wife and I that we got through our mortgage company when we bought our primary residence. I`ve since found out that I could get more coverage for the same price, and since we probably need a bit more insurance, I`d like to cancel this one and start fresh.

Are these policies typically cancelable, or do you have to wait until the mortgage renewal?

Thanks!

Michael

 

[LifesMoneyPeople]

Heres a great CBC Market Place Report that we send to our clients. Created Feb 2008 but still opens your eyes, we just use it as a comparison of our products vs bank products

Here is main link to the report

http://www.cbc.ca/marketplace/2008/02/06/m...nce_not_always/

Video link only seems to only work with Internet Explorer(no firefox)

http://www.cbc.ca/mrl3/8752/marketplace/in_denial.wmv

 

[wgraham]

QUOTE (hardel @ Jan 8 2010, 04:51 PM) Hi All,

I follow this board closely and I am learning all the time...Thanks! I was talking to my bank today about mortgage rates on a possible purchase of a rental property and he brought up the topic of purchasing life insurance. Property insurance, I understand you must have, but life insurance on investment properties.....What do you guys think?

Thanks!

Harold

This is something I have recently been investigating as well. I decline the mortgage insurance from my lender every time except on my personal residence. We have roughly 4 Million in loans and my first thought was to get a policy to cover the entire amount should I happen to leave this earth earlier than planned. To cover that amount would be about $800/month in my instance!! So I quickly started to re-think that strategy.

In the end I had the same thought as many have already posted...my properties cover themselves and make money so why bother with a full policy.

My other problem with the insurance was this...if I get a 1M policy now and it doesn`t pay out for 20 years they are not adjusted for inflation so 1M might not be that much by the end of the term. So I am "investing" in a product that isn`t inflation proof. This totally goes against my investment philosophies.

In the end I am going to purchase a small policy of $250K so that my family can have a nice cushion for about 3 years should I pass on. Our house would be paid off and my wifes business is also quite passive so they would be setup nicely.

As time goes on and my properties are being paid off I consider this a form of insurance as well as 20 years from now they will be worth a lot more than my 4M policy that I was looking at purchasing!!

 

[Cargren]

QUOTE (bizaro86 @ Jan 11 2010, 10:26 AM) Does anyone know the typical terms for cancelling mortgage life insurance? We have life insurance for both my wife and I that we got through our mortgage company when we bought our primary residence. I`ve since found out that I could get more coverage for the same price, and since we probably need a bit more insurance, I`d like to cancel this one and start fresh.

Are these policies typically cancelable, or do you have to wait until the mortgage renewal?

Thanks!

Michael

Mortgage insurance can be canceled at anytime, but most banks require something in writing though. If you do take out insurance, I definitely suggest life insurance. Mortgage insurance offered by lenders is more expensive and only pays out the balance of the mortgage to the lender in the event of your death, whereas life pays out the complete sum insured for. And it goes to your beneficiary who can then decide how much to pay off on mortgage.

I always like more control

 

[Mike200]

QUOTE (bizaro86 @ Jan 11 2010, 12:26 PM) Does anyone know the typical terms for cancelling mortgage life insurance? We have life insurance for both my wife and I that we got through our mortgage company when we bought our primary residence. I`ve since found out that I could get more coverage for the same price, and since we probably need a bit more insurance, I`d like to cancel this one and start fresh.
Are these policies typically cancelable, or do you have to wait until the mortgage renewal?

Thanks!

Michael

Hi Michael;

Being a life insurance agent for 15+ years just call your institution and notify them. They`ll likely want something in writing. You are likely further ahead to have you and your wife under written individually and cover the debt with a stand alone contract. Better rates, more control on the benefit should something happen to you or your wife. Also the rates are guaranteed and the coverage is guaranteed to renew and most likely the coverage is convertible to a permanent policy. If your health were to change such that you became uninsurable then, having an independant contract would become a very valuable asset.


I highly suggest that you obtain new coverage and have it in place before cancelling the replaced contract !


Have a great day,
Mike Hopkins

(905) 449.0880

Wealth Realized
Financial Services
[email protected]

 

[mortgageman]

Mortgage brokers are legally obligated to offer you mortgage life insurance. You are not obligated to take it.
Lenders want clients to take mortgage life insurance because it`s a profit centre.
While I am not an insurance expert and am not qualified to advise people how the banks` products compare to what`s available from third party insurers, I can tell you that I personally don`t have mortgage life insurance because it impacts cash flow and I`ve always been of the opinion that the property is part of my family`s insurance policy.

 

[MarkHealy]

Here is a thought that no one has seem to have addressed.

What about JV properties, specifically multi partner JV. We have had to address this in our company because the company shareholders are siblings. What happens when one dies? Deemed disposition of assets and tax on gain. Depending on your portfolio size this could be a big shock. For example each shareholder in this company has a 2m value if deemed disposition had to done today. Can the company pay them out without collapsing the revenue stream. If the company could do this for one shareholder what if two were in that car? You could end up with the estates getting paid out and the survivors not losing out.

Worst case your upside down on some properties in there name and you no longer qualify for new loans so you`re scambling to get new JV`s at a time when you may not want to be thinking business.

As with all insurance, it`s a rip off until you need it.
Sometimes you might

 

[NiagaraInvestor]

Just did it with life insurance.  Makes way more sense and gives your surviving spouse far more options should something happen.  This one is a no brainer.  The banks are the beneficiary of the policy if you buy insurance from them..

 

[Mike200]

QUOTE (mhealy @ Jan 18 2010, 06:59 PM) Here is a thought that no one has seem to have addressed.

What about JV properties, specifically multi partner JV. We have had to address this in our company because the company shareholders are siblings. What happens when one dies? Deemed disposition of assets and tax on gain. Depending on your portfolio size this could be a big shock. For example each shareholder in this company has a 2m value if deemed disposition had to done today. Can the company pay them out without collapsing the revenue stream. If the company could do this for one shareholder what if two were in that car? You could end up with the estates getting paid out and the survivors not losing out.

Worst case your upside down on some properties in there name and you no longer qualify for new loans so you`re scambling to get new JV`s at a time when you may not want to be thinking business.

As with all insurance, it`s a rip off until you need it.
Sometimes you might

Having handeld "buy / sell agreements" in partnership enviroments, for business, this is much the same. If a JV partner were to die then unless there is a will instructing what is to happen then the living JV partner is in business with the deceased`s spouse or children instantly. Having life insurance provides liquidity and options at a difficult time. Most term insurance policies are pennies if not a mere dollar or two a day depending on age and health, and health history. Makes sound business sense to protect the asset but moreso the manager of the assest. I have seen some really difficult situations when this happens and the parties are not prepared. The family of the deceased wants their money and this always seems to happen with bad timing. Inability to refinance, or the family of the deceased forces the sale of business/property and often the asset doesn`t receive full value. Not a common occurence but for $25-$100 a month, why take the chance??

 

[GaryMcGowan]

With regards to JV Partners and death,
I would refer to the JV agreement,
Some agreements say you have to sell now, some say you have 12 months to sell, 12 month to buy the deceased partners share. some "may" buy or sell.
Then there is the WILL, what does that say?

 

[Mike200]

QUOTE (GaryMcGowan @ Jan 19 2010, 10:54 AM) With regards to JV Partners and death,
I would refer to the JV agreement,
Some agreements say you have to sell now, some say you have 12 months to sell, 12 month to buy the deceased partners share. some "may" buy or sell.
Then there is the WILL, what does that say?
It depends, needs to be addressed. I like the info here but complications may arise if not prepared. The deceased`s
family has entitlement and may want their money before living JV is prepared to cough up. Insurance, even partial amount protects against liquidity issues. Hows the weather up there in Newmarket?